New EV, 5/6G communications breakthroughs by SOEs
China's regulators just announced breakthroughs in 5G communications for electric and autonomous vehicles, and in 6G technology. The announcements were made by the state asset regulator rather than the IT regulator; this indicates that China's SOEs are likely to support and purchase these technologies as a priority, giving them an instant market advantage. (See Bilby updates from yesterday and today).
In technical language, the first announcement is "the world's first 5G+C-V2X module supporting PC5 communication without GNSS". Less technically, it is the first time that vehicles can talk commercially with each other through 5G. The second is a much faster transmission method for videos as part of 6G technology; this will make drones better able to communicate with operators in real-time.
What is the technology?
It is an advanced 5G module that for the first time allows vehicles to communicate directly with each other without wireless network coverage. At present, you need to use a wireless network (GNSS) to measure positioning, speed, time, and directional information to the level that makes autonomous vehicles functional. This tells the sensors in your vehicle which lane you and other vehicles are in, or lets you know where you are in garages or dense urban areas. The Chinese breakthrough lets you do the same thing through the vehicles speaking directly to each other without needing to be connected to a wireless network.
Vehicle-to-vehicle communication has a number of advantages. It is safer: vehicles can broadcast directly whether or not they are turning, accelerating or braking. It less affected by the weather. And finally, it is faster, will aid the remote control of driverless vehicles, a capability that will enable managing autonomous trucks and robotaxi fleets.
The second is a way of broadcasting video through tetraherz ("THz") communication. By using a higher frequency, the video is able to be transmitted without being compressed at all, saving time at both ends. It is also able to work far better in windy, smoky, or dusty environments. THz communication is expected to be the backbone of the next generation 6g systems as it lets air, land, and sea based communications platforms integrate with each other.
How strong is the signal?
As a direct ministerial announcement, we see this as highly credible. Few officials are willing to claim something happened that can later be checked and blamed on them.
It is an upgrading and republication of a notice originally issued by China's state-owned asset manager ("SASAC"). Other ministries are not also named. In this sense, there is less of a splash made about this than one might usually expect. That may indicate a lack of willingness of the regulator to post such news without formal verification: SASAC is not possessed with the technical ability to assess such a breakthrough. The next step, then, will come when China's IT regulator, the Ministry of Industry and Information Technology, makes announcements on the breakthrough. A number of China's ministries have already been made responsible for China's Strategy for Innovative Development of Intelligent Vehicles, which includes builiding a national traffic- control network of 5G smart roads. We expect these regulators soon to also make an announcement.
China's top-down commitment is considerable. Current estimates have it that there should be 5 million 5G base stations in China by 2025. On the basis of the bid placed by China Mobile in a tender for 5G base stations of 500,000 RMB/station, the direct investment for this number of 5G base stations will reach circa 2.5 trillion RMB. 2020 estimates put it that by 2025, the investment related to the 5G industry chain will exceed 5 trillion RMB. By choosing to promote two specific companies as making this breakthrough, this is a large signal that the government expects state-owned enterprises to support it.
The previous signals include: the December 2018 Central Economic Work Conference (the annual outline of where China's leaders plan the economy to go for the year ahead) called for faster adoption of 5G; this was then picked up by the annual government and legislative meeting in March 2019. The December 2019 Central Work Conference however only called for "steady promotion" of communication networks. The action really started in January 2020. The government first anounced that it would support IT networks specifically as part of its infrastructure spending, a decision then followed also by China's top leaders at both Politburo and Politburo Standing Committee meetings in February and March.
Impacts:
Neither of the companies named as developing these major breakthroughs had any form of notable impact on their share price. This we can see as due to their status as SOEs, and not dependent on capital markets for support. (The EV breakthrough was made by a small Sichuan startup that only had a seed round in 2020 before being subsumed by giant Changhong Electric, former defence contractor turned the world's largest TV exporter). Both of these breakthroughs is likely to attract more attention from US regulators than investors. Both, however, also confound the hypothesis that Chinese SOEs are not able to innovate. Ailian Technology, which came up with the vehicle-to-vehicle communication tool, is a national "model enterprise" for "mixed ownership, optimizing the professional managers, innovating the incentive distribution system of scientific research personnel, and enhancing the ability of independent innovation."
But we think that there are two sector level impacts. The first is on large EV companies such as Tesla China represented 41 percent of global EV sales in 2020; America just 2.4 percent. Autonomous driving is the future of EV sales growth. It shall also bring considerable regulatory impact. This makes any sort of signals as to what will be the preferred government supplier useful.
Ailian's vehicle-to-vehicle breakthrough is also about to be rolled out throughout China. Bilby notes that "the module will start commercial verification in national high speed and national intelligent network / vehicle road collaborative demonstration area, pilot area and test area. Last October in Shanghai, more than 30 automotive companies participated in an interoperability and performance test, including nine Chinese carmakers and the country’s largest cellular-network operator, China Mobile." Given how China exposed Tesla and other EV ancillary products are